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Voters alerted to tax concerns on Initiative 1

Private group has qualms on use of revenues, initiative

The Utah Tax Review Commission drafted an alert to voters Friday about the repercussions of an open space initiative on this year's election ballot.

Initiative 1 would use a .05-cent sales tax hike to fund a $150 million bond that would pay to clean water and air, preserve open space and build parks. The initiative, sponsored by Utahns for Clean Water, Clean Air & Quality Growth, would cost the average Utah family about $14 a year.

After airing numerous qualms about Initiative 1, the commission identified eight concerns about how the $150 million bond would affect tax policy in Utah.

Sponsor group Vice President Maura Carabello said she saw the list of concerns as not unique to Initiative 1 but simply as reminders to voters to understand the tax ramifications of any bond. Even weighing the concerns, Carabello said she was confident that voters would still be willing to "pay the equivalent of two movie tickets to preserve open space."

At the heart of concerns from the commission was the use of sales tax revenue to support the bond and the use of the initiative process to determine tax policy.

The initiative pledges the state's entire sales tax pot in case the tax increase is not enough to cover the bond. Commission member Bruce Johnson said using sales tax revenues as a backstop for the bond effectively ties the hands of the Legislature.

"The legal structure in place could really put the Legislature in a straitjacket when it comes to sales taxes," he said.

While the commission agreed that the tax hike would likely cover the bond, member Janis Dubno said she would feel more comfortable if the initiative had increased the sales tax more to guarantee the bond wouldn't eat into the general sales tax fund. Dubno added that it has not been clear to voters that the bond costs will get first dibs on state sales tax revenue.

The commission also raised concerns that the initiative process is not an appropriate way to create tax policy. Commission member Lyle Hillyard said the crux of that concern is that initiatives are almost impossible to amend after they have been passed. Making law by initiative also bypasses the deliberation and compromise that comes from legislative action, he said.

"I cringe every time someone says if there's a problem with an initiative then the Legislature can just fix it," he said. "I can guarantee you that there will be people at the Legislature saying, 'Don't touch that, it's almost sacred because the people passed it.' "

Carabello said the initiative process was a final resort after the Legislature ignored proposed bonds for open space for years. She added that Utah's requirements to get an initiative on the ballot are rigorous, requiring the bond to earn its spot with 130,000 signatures and numerous public hearings.

"The bar on this has been very high and we've met every mark," she said. "This has been well-scrutinized because it's been an open process. We are very comfortable that this meets legal and constitutional requirements."

Another central question raised by the commission was whether the $150 million bond would hurt the state's Triple AAA bond rating — the highest possible. While most commission members agreed that the individual bond would most likely not cause that rating to slide, a habit of imposing bonds through initiative could eventually harm the bond rating.

"We have a finite limit of spending before we lose our rating. Losing that bond rating would be an absolute disaster in the state," Commission Chairman Keith Prescott said.

The commission's final list includes concerns that:

sales tax should not be earmarked for specific projects.

the bond burden may eat into general sales tax revenues.

the bond will reduce the state's limited bonding capacity and may eventually hurt the state's bond rating.

the question of how the bond will affect the state's bonding capacity will need to be decided by a court.

people may not understand the initiative includes a tax increase.

the initiative process is not a good way to address tax policy.

the Legislature cannot balance competing interests when tax policy is made by initiative.

a provision requiring the state to pay local governments the equivalent of property taxes may not be constitutional.

The commission did commend the initiative for having its own funding source, the sales tax hike, written into the law.